Diamond Foods Reports 52% Earnings Growth for Fiscal 2010
Total retail net sales grew 81 percent to $167.9 million and snack sales grew 129 percent to $125.1 million. Retail sales made up 95 percent of the quarter's total net sales mix, the highest in the company's history.
Oct 7 2010 --- Snacks manufacturer Diamond Foods, Inc. has reported record financial results for its fourth quarter and full year of fiscal 2010. Net sales during the quarter grew 55 percent to $176.6 million as a result of the strong performance of the company’s retail brands and the acquisition of Kettle. Total retail net sales grew 81 percent to $167.9 million and snack sales grew 129 percent to $125.1 million. Retail sales made up 95 percent of the quarter's total net sales mix, the highest in the company's history, as a result of an earlier sell-in of bulk and ingredient sales in 2010 compared to 2009, and the continuing growth of our retail brands. Full fiscal year net sales grew 19 percent to $680.2 million, with retail net sales up 23 percent and non-retail net sales up 4 percent.
For the quarter, gross profit as a percentage of net sales was 24.8 percent compared to 28.9 percent during the prior year's quarter. The prior year's quarterly gross margin included a favorable 890 basis point estimate adjustment to commodity pricing and yield assumptions for prior quarters due to the changes in commodity markets last year that were not repeated in the current year's quarter. On a sequential basis, gross margins improved from the third fiscal quarter to the fourth as a result of including a full three months of higher margin Kettle sales, along with the carryover benefit of culinary nut price increases taken late in the third fiscal quarter.
Selling, general and administrative expense (SG&A) was $20.3 million during the quarter. For the full fiscal year SG&A was $64.3 million, or 9.5 percent of net sales compared to 10.7 percent of net sales during the prior year's period. The 120 basis point improvement in full year spending as a percentage of net sales was primarily driven by greater scale in snack sales and higher costs during the prior year period associated with the Pop Secret acquisition.
Full year advertising expense grew $4.2 million over the prior year to $33.0 million, or 5.8 percent of retail sales.
The effective tax rate was 27.0 percent for the quarter and 34.8 percent for the year, reflecting the favorable impact from lower tax rates associated with the Kettle operations.
As of July 31, 2010, total debt was $556.1 million.
For the full year of fiscal 2011, the company now expect EPS to range from $2.38 to $2.48 compared to $2.35 to $2.45 previously. This implies net income growth of between 45 percent and 50 percent over fiscal 2010's non-GAAP results. This guidance reflects:
• Net sales of between $910 million and $940 million;
• Snack sales of between $540 million to $560 million;
• Favorable gross margin growth of 250 to 300 basis points over 2010 as our mix of retail sales increases to about 90 percent;
• A significant investment in advertising (from $33 million in 2010 to between $38 million and $43 million in 2011) to support the future growth of our brands;
• Planned infrastructure investments in SG&A;
• An effective tax rate of 34 percent to 36 percent;
• Capital expenditures in the range of $30 million to $35 million;
• An improvement in operating income as a percent of net sales to 11.5 percent to 12.0 percent, excluding acquisition and integration costs.
Kettle being a less seasonal business will impact the distribution of quarterly sales and earnings. “The 2010 California tree nut crop is projected to be the largest in history but will be harvested much later than normal. We expect the delayed harvest to shift the timing of some of our culinary, in-shell and non-retail sales from the first fiscal quarter into the second. In addition, we expect to experience greater earnings growth in the second half of fiscal 2011 versus last year, as we more fully realize the impact from new product launches, increased distribution and improved product mix. As a result we expect 60 percent to 65 percent of our full-year earnings to occur in the first half of the fiscal year and about 40 percent of that to be realized in the first quarter,” the company reported.
